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Last Updated: Monday, February 26, 2018

P/E Ratio or P/E multiple stands for Price to Earning Ratio, this is one of the most popular and proven tool of stock valuation. Price in stock market is more or less determined by P/E ratio.

P/E = Price/EPS

Or,

Price = PE x EPS

*P/E = Price to earning

*EPS = Earning Per Share

As a rule of thumb the lower P/E is, the lower valuation of stock is said to be. However, P/E ratio should not be the single parameter of stock valuation. It should be noted whatever PE multiple we see is the result of past performance of the stock but market always react on future growth potential of the company where you should look for 'Forward P/E'. At the same time investors should not ignore PE,because it reflects valuation trend of the stock. Some stocks tends to trade at higher PE where some of them trade at lower PE, confused? Let me explain in simple way; suppose a stock trading at normal valuation and there is news flash that the cost of raw material used by the company has declined significantly, how will you react? You should simply buy the stock because the overall cost of the company will come down due to which profit will certainly surge. Now come to P/E, due to increased profit the P/E of the stock must also come down.

Last Updated: Thursday, February 22, 2018

Stock Idea; Chennai Petroleum Corporation Limited (CPCL)

Chennai Petroleum is one of the best
stocks in refineries sector trading at a very low PE. This is a buy for a
number of other reasons. Chennai Petroleum is a company that is into crude oil
refining.

About the company

Chennai
Petroleum Corporation Limited (CPCL) is an Indian state-owned oil and gas
corporation headquartered in Chennai, India. Formed as a joint venture between
Government of India, AMOCO and National Iranian Oil Company (NIOC), it was formerly
known as Madras Refineries Limited (MRL). Chennai Petroleum is a public sector
undertaking (PSU) and categorized as Miniratna-I.

Product portfolio;

The main products of the Chennai
Petroleum are;

LPG,

High Speed Diesel,

Motor Spirit,

Bitumen,

Lube Base Stocks,

Superior Kerosene,

Aviation Turbine Fuel,

Naphtha,

Paraffin Wax,

Hexane,

Petrochemical Feed Stocks and

Fuel Oil.

Fundamentals;

Mar'17
(In Rs Cr)

Total Share Capital

1,149.00

Net Worth

4,441.10

Total Debt

4,497.72

Net Block

3,882.83

Investments

140.00

Total Assets

8,938.81

Valuation;

MARKET CAP (RS CR): 5,427.08

EPS (TTM): 60.81

P/E : 5.99

INDUSTRY P/E: 9.56

BOOK VALUE (RS): 222.53

PRICE/BOOK: 1.64

DIV (%): 210.00%

DIV YIELD.(%): 5.76%

FACE VALUE (RS): 10.00

Why
Chennai Petroleum is a multibagger stock?

Chennai Petroleum is a multibagger stock which has risen
from Rs. 51.75 in October, 2013 to Rs. 480 in October, 2017 i.e. it delivered
more than 800% profit in just 4 years. Chennai Petroleum witnessed a fantastic
years even in 2017-18 and the same trend is expected to continue.

The company has already reported an EPS of Rs 50 in the last
three quarters of FY 2017-18. An another
Rs 15 to 18 EPS is expected in the fourth quarter, if it is then the twelve
month trailing (TTM) EPS will come
around Rs 65 to 68. Hence at a current price of Rs 353 the stock of Chennai
Petroleum is trading around P/E multiple of 5 only and at this price valuation
is mouth watering.

Chennai Petroleum is one of the best stocks in refineries
sector trading at a very low PE. This is a buy for a number of other reasons.
Chennai Petroleum is a company that is into crude oil refining. As long as
crude oil prices remain subdued there is a complete scope for the stock price
to rally. The company has also known for excellent dividend yield track record
it recently declared a stupendous dividend of Rs 21 per share accounting for a tax
free dividend yield of Rs. 5.75 % at current share price of Rs 353.

Technical;

On yearly chart the
stock of Chennai petroleum is trading at Rs. 353 (as of 21th feb, 2018), it has
support at Rs. 339 which is it’s 52 week low price too. On the top line it has
made high of Rs. 480. Hence as a rule of thumb it is a buy at current price
with a target of 475-480 (35% upside) with a
stop loss of Rs. 335-340. Risk reward ratio is highly favorable in this stock.

Threats;

Chennai Petroleum is a company that is in crude oil refining business and therefore heavily depended on crude prices.

Other
factors related to Chennai Petroleum

Mutual
Funds Holding (As of 20th Feb, 2018)

SCHEME

NO.
OF SHARES

Aditya Birla Sun Life Bal. 95 Fund (G)

1,963,018

Aditya Birla Sun Life Pure Value Fund (G)

1,389,428

Aditya Birla Sun Life Small and Midcap Fund

681,710

Aditya Birla Sun Life Frontline Equity Fund

313,295

*Broker’s View;

KR Choksey in it's research report said that they expect Chennai Petroleum to fetch an EPS of INR 68.48
for FY18E, INR 107.05 for FY19E and INR 124.95 for FY20E. While at CMP of INR 426,
the stock is trading at 3.98x of its FY19E earnings and at 3.41x of its FY20E
earnings. We recommend a BUY rating with a target price of INR 510. find detail report on chennai petro here here>>>

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Last Updated: Monday, February 19, 2018

For an investor PE Ratio is one of the significant and mostly used price multiples for stock valuation and investment idea. A higher PE indicates better operating performance whereas a lower PE indicates cheap valuation of stock. PE Ratio or PE multiple is the most popular and widely used indicator available to investors across the globe. Apart from seeing the PE ratio of a company, people need to also see the industry PE ratio because that will also highlight the status of peers and the industry in general and what is the position of the company in consideration when it is compared with the peers.

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DISCLAIMER I am not an Investment advisor and do not provide this service via this Blog. The stocks discussed on the blog and each post are for educational and discussion purposes only and are not recommendations to buy or sell stocks. I may or may not have a position in the stocks discussed on this blog. For any investment decision, please contact a certified investment advisor.